Posted in Finance, Accounting and Economics Terms, Total Reads: 444
Definition: Churn Rate
Churn rate is the percentage of customer who has cut ties with company or have discontinued their subscription in a given time period. These customers have “churned.” For expansion, the growth rate has to be greater than the churn rate i.e. number of new customer should be more than those who left.
Also known as attrition rate depicts the contracting customer rate. It is important for a subscriber based business, to control the churn rate in order to know the customers that are transferred to another service provider. It can be used an indicator of customer dissatisfaction, better services or sales/marketing by competitors. It is closely related to customer average life time.
If the churn rate is 20%, the average customer life is 5 years. Churn rate can be minimized by creating barriers for switching. High switching cost, contract binding, and loyalty programs can be methods to do so. Another way to look at is the revenue churn. It is the ratio of monetary amount of revenue lost in a period that would have been recurring if the customer stayed to the total revenue.